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Justice Scalia, reversing the U.S. Court of Appeals for the Federal Circuit, delivered the opinion of the Supreme Court, holding that under the Declaratory Judgment (DJ) Act (the Act), a licensee in good standing need only plead a license dispute in order to challenge the underlying patent.MedImmune, Inc., v. Genentech, Inc., et al; Case No. 05-608; (U.S. Sup Ct., Jan. 9, 2007) (Scalia, Justice; Thomas, Justice, dissenting).

In 1997, Genentech granted a patent license to MedImmune for a patent covering the production of chimeric antibodies and a then-pending patent application (now the Cabilly II patent) covering the coexpression of immunoglobulin chains in recombinant host cells. Soon after MedImmune began to manufacture Synagis, a drug used for infants and young children to protect against respiratory tract diseases, the Cabilly II patent issued. Genentech informed MedImmune of its belief that Synagis was covered by the patent and expected royalty payments to commence. MedImmune believed Genentech’s letter provided notice that Genentech would enforce the Cabilly II patent, terminate the license agreement and sue for patent infringement if it did not pay the demanded royalties. Although MedImmune believed it had invalidity and non-infringement defenses, it began paying the demanded royalties “under protest and with reservation of all of [its] rights.” MedImmune feared the possibility of actual damages, treble damages, attorney’s fees and an injunction against its product, from which it realized 80 percent of its revenues.

Genentech moved to dismiss MedImmune’s DJ complaint for lack of subject-matter jurisdiction. Its motion was granted by the district court and affirmed by the Federal Circuit. Both courts based their decisions on the Federal Circuit decision in Gen-Probe Inc. v. Vysis. Inc., holding that a patent licensee in good standing cannot establish the requisite case or controversy under Article III to invoke the Act because the license agreement removes any reasonable apprehension of a suit for infringement.

The Supreme Court reversed, finding that MedImmune’s DJ complaint pled a contract dispute, i.e., that it had no obligation to pay royalties on an invalid patent and that was sufficient to confer subject-matter jurisdiction under the Act. The Supreme Court noted that disputes that satisfy the case or controversy requirement be “‘definite and concrete, touching the legal relations of parties having adverse legal interests’ and that it be ‘real and substantial’ and ‘admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.’” The Supreme Court articulated the case or controversy test as follows: “[b]asically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy,between parties having adverse legal interests, of sufficientimmediacy and reality to warrant the issuance of a declaratory judgment.” The issue then was whether MedImmune, having made royalty payments “under protest and with reservation of all of [its] rights,” pre-empted the existence a case or controversy.

The Court analogized the dispute to one “where threatened action by government is concerned,” noting that “we do not require a plaintiff to expose himself to liability before bringing suit to challenge the basis for the threat — for example, the constitutionality of a law threatened to be enforced.” Turning to its own precedent, Altvater v. Freeman, Justice Scalia characterized the decision as holding that “a licensee’s failure to stop its royalty payments did not render a dispute over the validity of the patent non-justiceable.” In Altvater, the licensee paid, “under protest,” royalties required by an injunction the patentee had obtained in an earlier case and filed a declaratory judgment that the patents were invalid. The Altvater Court reasoned that payment of royalties did not make the “dispute of a hypothetical or abstract character” since the royalties “were being paid under protest and under the compulsion of an injunction decree.” The Court reasoned that the result in Altvater was based simply on the consequences of stopping payment, not the existence of an injunction. Analogizing Altvater to the case at hand, the Court viewed the possibility of actual and treble damages as coercive where it threatened the solvency of MedImmune’s business.

The Court concluded that “the requirements of [a] case or controversy are met where payment of a claim is demanded as of right and wherepayment is made, but where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim.” In sum, the Court held that “petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed. The Court of Appeals erred in affirming the dismissal of this action for lack of subject-matter jurisdiction.”

Justice Thomas, in a rare disagreement with Justice Scalia, dissented. Justice Thomas reasoned that in order to meet the case on controversy requirements, a patentee must breach its license before challenging the patent validity. Justice Thomas also found error in the Court’s equating governmental coercion to private contractual obligations, stating that “[b]y holding that contractual obligations are sufficiently coercive to allow a party to bring a declaratory judgment action, the majority has given every patent licensee a cause of action and a free pass around Article III’s requirements for challenging the validity of licensed patents.”

Practice Note:As patent disputes resolved by licenses are no longer as final as before, when licensing a patent, the patent owner should now address whether any attack by the licensee on the underlying patent would result in automatic termination of the license grant, thus at least pressuring the issue of infringement in the event of a patent validity challenge by a (former) licensee.

Patents / Litigation / Standing

Licensing and Enforcement Agents May Not Have Standing to Sue for Patent Infringement

Contact Paul Devinsky

The U.S. Court of Appeals for the Federal Circuit again confirmed that an agent having only the authority to enforce and license a patent does not have standing to sue in its name alone, nor does it have the authority to be joined as a party-plaintiff. In this case the patent owner entered into an agreement with an agent that provided responsibility to license and enforce of the subject patent. After litigating the patent against an accused infringer, the district court dismissed the action for lack of subject-matter jurisdiction. The Federal Circuit affirmed. Propat International Corp. v. Rpost International Limited, Case Nos. 2006-1222, -1223, -1270 (Fed. Cir., Jan. 4, 2007) (Bryson, J.).

Propat, the plaintiff, had the right to license patents owned by Authentix to third parties, to enforce the licensing agreements and to sue infringers. Propat retained a percentage of the proceeds. Propat did not hold any exclusive patent license rights of its own, i.e., the exclusive right to make, use or sell the patented invention. Moreover, Authentix retained the right to approve certain actions as well as to terminate the agreement. Propat’s ability to transfer its rights was subject to Authentix’s consent.

The Court confirmed that the “right to sue” that is “unaccompanied by the transfer of other incidents of ownership, does not constitute an assignment of the patent rights that entitles the transferee to sue in its own name.” The Court looked to the agreement and the rights allocated to each party. The Court held that there was no transfer of “all substantial rights” because Authentix had the obligation to maintain the patent, had an economic interest and had the right to veto licensing and litigation decisions. The agreement could also be terminated if certain conditions were not met. As such, the rights were insufficient to make Propat an assignee of the patent.

Propat was held not to have any exclusive right because of the interest retained by Authentix and thus was not even an exclusive licensee. The Court acknowledged that the facts of this case did not fit neatly between the assignee and licensee analysis and thus turned to the 1923 Supreme Court decision in Crown Die & Tool v. Nye Tool & Machine Works for guidance. In Crown Die & Tool, the Supreme Court “refused to permit the right to sue to be segregated from formal ownership of the patent, with the very narrow exceptions previously recognized, including the right accorded to exclusive licensees.” Finally, Propat’s request to join Authentix as a party was denied for lack of subject-matter jurisdiction.

Affirming a district court’s grant of a preliminary injunction to Abbott Laboratories, the U.S. Court of Appeals for the Federal Circuit found that the lower court had not abused its discretion in ruling that Abbott was likely to succeed on the merits of its Biaxin XL patent infringement claim against Andrx Pharmaceuticals.Abbott Labs. v. Andrx Pharms., Inc., Case No. 06-1101, (Fed. Cir., Jan. 5, 2007) (Prost, J.).

The Court commenced its analysis by rejecting Andrx’s claim that Abbott was precluded from asserting certain claims in the three Biaxin XL-related patents at issue because those patents had been found invalid and unenforceable in separate actions against Teva Pharmaceuticals and Ranbaxy Laboratories. The Court held that the doctrine of collateral estoppel did not apply to the case because the findings Andrx relied on to support its collateral estoppel argument were not final decisions. Applying the law of the Seventh Circuit to the collateral estoppel question, the Court found that the patent invalidity and enforceability determinations made in the preliminary injunction proceedings against Teva and Ranbaxy did not qualify as “full litigation and decision on the merits for purposes of issue preclusion.” According to the Court, those findings merely showed a “likelihood” of success in proving invalidity and were not final findings on the issue of whether the Abbott patents were valid or enforceable.

The Court next turned to the issue of whether the district court had abused its discretion in finding that Abbott was likely to succeed against Andrx on its infringement claims. Here, the Court affirmed the lower court’s finding and pointed out both that Abbott had shown a likelihood of success in proving infringement of at least one claim and that the district court found that Andrx did not show it was likely to prevail in its defense, a finding unchallenged on appeal. The Court noted that the district court had applied an erroneously narrow claim construction in analyzing whether Andrx’s generic product infringed under the doctrine of equivalents. However, the Court concluded that the district court nevertheless would have reached a conclusion of equivalents infringement under the proper (i.e., broader) claim construction. Because Andrx only appealed the district court’s findings regarding the likelihood of success on the merits, the Court did not need to reach any of the other preliminary injunction factors.

Patents / Claim Construction

Doctrine of Equivalents Requires that a “Predetermined” Combination be Determined Beforehand
By Eric Hinkes

Addressing the issue of claim construction, the U.S. Court of Appeals for the Federal Circuit affirmed the District Court’s summary judgment of non-infringement and, citing the claim element vitiation rules of the Supreme Court’s decision in Warner-Jenkinson, held that a color that is “predetermined” cannot, as a matter of law, be considered equivalent to a color that is selected after a game begins.Planet Bingo, LLC. V. GameTech Int’l, Inc., Case No. 05-1476 (Fed. Cir., Dec. 13, 2006) (Rader, J.).

Planet Bingo, the exclusive licensee of two patents that claim various methods of playing bingo, initially brought suit against GameTech for offering a version of its Rainbow Bingo product for sale, claiming infringement of the two patents. The patent claims required that the game include the establishment of a “predetermined winning combination.” The district court held that because the accused device assigned the specific winning combinations only after the first drawing, there was no infringement, literal or under the doctrine of equivalents. Planet Bingo appealed.

The main infringement issue on appeal was one of claim construction, involving the term “predetermined” and specifically whether the winning combination must be established prior to drawing the first bingo ball. Planet Bingo argued that the claimed “progressive … predetermined winning combination” limitation “merely requires that participants in the game know, before the start of play, the predetermined rules for winning a progressive jackpot.” GameTech argued that the claims required the “fixation of the entire winning combination before drawing the first bingo ball in any given bingo game.” Agreeing with GameTech, the Federal Circuit affirmed the district court’s determination of non-infringement. In terms of the doctrine of equivalents, the Court held that because Rainbow Bingo always determined the winning combination after the start of the game, it could not be “predetermined.” Although the “doctrine [of equivalents] does provide additional coverage for the exclusive right to protect a patent holder in the event of an unforeseeable change,” the Court emphasized in this particular case the change in game play was foreseeable in that “the patents contain a distinct limitation, which was part of the bargain when the patent issued.” The Court noted that Planet Bingo’s proposed application of the doctrine would effectively and impermissibly change “before” to read as “after,” the very antithesis of the claimed method, not the type of “small variation” contemplated by the doctrine of equivalents.

Deciding the sole issue of proper construction for the term “dispensing,” the U.S. Court of Appeals for the Federal Circuit overturned a decision of no infringement of a medical patent for an automated process. A panel majority found that the lower court’s construction requiring “direct dispensing” improperly imported a claim limitation from the specification.Ventana Medical Systems, Inc. v. BioGenex Laboratories, Inc., Case No. 06-1074 (Fed. Cir., Dec. 29, 2006) (Prost, J.; Lourie, J., dissenting).

Ventana’s U.S. Patent No. 6,352,861, directed to an automated dispensing system to perform a variety of biological assays, is one of seven patents that share a common specification.BioGenex manufactures and sells automated staining devices. Ventana filed suit against BioGenex alleging infringement, asserting several claims of the ’861 patent. Based on the claim context and the written description, the district court construed the term “dispensing” as “direct dispensing,” meaning that “the reagent is dispensed directly from the reagent container” onto the slide, rather than utilizing anintermediate transport mechanism to transfer reagent from the reagent container to the slide. The district court also concluded that statements made during prosecution of an ancestor application amounted to a “clear and unmistakable” disclaimer of a particular type of indirect dispensing, referred to as “sip and spit” dispensing. Following the Markman ruling, Ventana stipulated that BioGenex did not infringe the ’861 patent under the district court’s claim construction, which it appealed.

In a stepwise analysis, the Federal Circuit first noted that the ’861 claims do not contain any language limiting the disputed term to direct dispensing and that BioGenex admitted that the word “onto” does not exclude indirect dispensing methods from the term’s ordinary meaning. The Court declined to interpret general statements in the application distinguishing “sip and spit” art as a complete surrender of indirect mechanisms because such logic could similarly be applied to statements distinguishing direct dispensing art. Narrowing the construction based on disclosed embodiments also was refuted as improper.

The Court further found that coverage of “sip and spit” methods was not disclaimed during prosecution of the ancestor patent because the two patents did not share the same claim language. The ancestor patent required the reagent container to be “dispensable directly to a sample,” whereas the ’861 patent claims only required dispensing a reagent onto a slide. The Court found statements made to distinguish indirect dispensing methods in the ancestor patent to be irrelevant to the construction of “dispensing” in the disputed patent. Applying a similar rationale, the Court further rejected the argument of prosecution disclaimer arising from two later-issued patents within the lineage.

In a dissent that relied heavily on the intrinsic record, Judge Lourie concluded that the common specification shared by all seven patents and the prosecution history made clear that direct dispensing was “the essence of the invention” and that the specification lacked any suggestion of an alternative indirect mechanism.

In a long-awaited decision that affirmed the validity of Eli Lilly’s patent on its top-selling Zyprexa®, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s April 2005 ruling on issues that included anticipation, obviousness and public use.Eli Lilly and Company v. Zenith Goldline Pharmaceuticals Inc., Case Nos. 05-1396, -1429, -1430 (Fed. Cir., Dec, 26, 2006) (Rader, J.).

The case stems from a challenge by generic drug makers Zenith Goldline Pharmaceuticals (owned by IVAX Corp. of Miami), Dr. Reddy’s Laboratories of India and the U.S. arm of Israeli-based Teva Pharmaceutical Industries, which argued that Lilly’s patent is invalid. Lilly’s patent covers olanzapine, sold as Zyprexa®, and its use for the treatment of schizophrenia. The three generic manufacturers filed an Abbreviated New Drug Application (ANDA) and Lilly responded with a complaint in the Southern District of Indiana. After a bench trial, the district court agreed with Lilly that the patent was valid, infringed and enforceable.

The prior art to olanzapine includes ethyl flumezapine and flumezapine, both disclosed in a patent that issued in 1978. The only difference between flumezapine and Zyprexa® is the presence of a fluorine atom in flumezapine where Zyprexa® has a hydrogen atom. Ethyl flumezapine caused widespread blood problems in dogs. Flumezapine caused extrapyramidal symptoms (EPS) and an increase in liver enzymes and a muscle enzyme. The prior art also includes ethyl olanzapine, referred to as Compound ’222. Ethyl olanzapine caused a significant increase in cholesterol in female beagle dogs. Thus, the prior art to olanzapine had significant detrimental side effects. Until discovery of olanzapine, researchers attributed the efficacy of typical antipsychotics to an electron withdrawing group considered important to the antipsychotic activity of the compounds. Halogen, a fluorine or chlorine atom, is such an electron withdrawing group. Olanzapine does not have a halogen atom. Instead, it has a hydrogen atom, which is not an electron withdrawing group.

The Court commenced its analysis with the issue of anticipation and affirmed the district court’s finding that the prior art does not anticipate olanzapine. The panel rejected IVAX's argument that a 1980 publication (“Chakrabarti”) disclosing flumezapine anticipated olanzapine because it identified compounds from the same family of compounds. The Court distinguished PTO Board decisions In re Petering and In re Shauman, by pointing out that in both cases the prior art enabled one of ordinary skill in the art to at once envisage each member of a limited class. By contrast, the panel pointed out, the number of compounds actually disclosed by Chakrabarti numbers in the millions.

Turning to obviousness, the panel cited its decision in In re Dillon for the proposition that, for a chemical compound, a prima facie case of obviousness requires “structural similarity between claimed and prior art subject matter … where the prior art gives reason or motivation to make the claimed compositions.” The Court noted that, while Chakrabarti suggests exchanging the fluorine atom with a chlorine atom to enhance the compound’s activity, it does not specifically suggest that the same result could be obtained with a hydrogen atom. With regard to the unfluorinated Compound ’222, the panel noted that the art disclosed this compound to be less active than the benchmark compound. The Court further noted that, far from a motivation to combine, the prior art would have directed one of skill away from making either flumezapine or Compound ’222 given their documented side effects. In addition to there being no motivation to select the prior art references and to combine them in the particular claimed manner to reach the claimed invention, the Court pointed out that Lilly “overcame any prima facie case of obviousness” with evidence of a long-felt but unmet need for a safe antipsychotic for 15 years and of olanzapine’s unexpected results.

With regard to public use, the panel concluded that Lilly's Phase I clinical safety trials were well within the experimental use exception. Lilly tailored its tests to their experimental drug safety and efficacy purpose, adequately monitored for results and maintained confidentiality throughout the duration of the study. Finally, the panel also rejected the inequitable conduct allegation, finding that Lilly did not intentionally blur the distinctions between humans and dogs on the record during prosecution and that in not disclosing certain prior art, there was neither a material omission nor a non-disclosure with intent to deceive.

Patents / Statutory Bar / Declaratory Judgment

Federal Circuit Provides Guidance on What Would Trigger the On-Sale Bar for a Patented Process
Contact Paul Devinsky

Addressing the issue of what would trigger the one-year on-sale bar under 35 U.S.C. §102(b) for a process, the U.S. Court of Appeals for the Federal Circuit held that a process is the subject of a sale or offer for sale either if a commercial offer to perform the patented process was made before the critical date or if the patented process was indeed performed before the critical date for a promise of future compensation.Plumtree Software, Inc. v.Datamize, LLC, Case No. 06-1017 (Fed. Cir., Dec. 18, 2006) (Newman, J.).

Datamize sued Plumtree Software for patent infringement under three patents related to a computerized process for creating computer programs. Plumtree filed a summary judgment motion asserting that the patents were invalid under the on-sale bar. At issue was whether the on-sale bar should apply in view of the inventor’s offer, before the critical date, to display a computer kiosk which allegedly “embodied” all the claims at a trade show taking place after the critical date. The lower court granted summary judgment. Plumtree appealed.

The Court vacated the summary judgment, indicating that the record, which focused on the computer kiosk that was made by the claimed process rather than the claimed process itself, did not provide a basis to support the conclusion that the patented process was the subject of an on- sale.

In the Federal Circuit’s view, Plumtree had two ways to establish that the patented process was the subject of an invalidating on-sale. It could show either that a commercial offer to perform the patented process was made before the critical date or that the patented process was performed before the critical date for a promise of future compensation.

Under the first theory, the Court reasoned that even though a contract entered into before the critical date requires the inventor to provide a computer kiosk, the kiosk could be implemented using many different methods other than the patented process. There was no showing in the record that the contract required the inventor to perform the patented method. As to the second theory, the record also failed to establish that, pursuant to the contract entered into before the critical date, the inventor actually performed all of the claimed process steps.

The Court also decided that based on a previous lawsuit filed by Datamize against Plumtree for infringing the parent of the patents involved in the present action, Plumtree satisfied the prerequisite reasonable apprehension of suit required to bring a declaratory judgment action.

Upholding its responsibility as a court of limited jurisdiction “to satisfy itself ... of its own jurisdiction” by considering a jurisdictional issue that was not raised in the initial written submissions of the parties, the U.S. Court of Appeals for the Federal Circuit recently transferred an appeal to a sister Court of Appeal based on lack of jurisdiction. Thompson v. Microsoft Corporation, Case No. 06-1073 (Fed. Cir., Dec. 8, 2006) (Linn, J.).

Robert Thompson filed a complaint alleging a state claim for unjust enrichment against Microsoft Corporation in a Michigan state court. Thompson based his claim on “Microsoft’s alleged misappropriation, patenting, and use of Thompson’s intellectual property.” Defendant Microsoft removed to the district court based on diversity and 28 U.S.C. § 1338(a). Subsequent to removal, the District Court for the Eastern District of Michigan granted summary judgment and dismissed Thompson’s claim for unjust enrichment based on federal patent law preemption.

Section 1338 of Title 28 of the United States Code gives district courts original jurisdiction “of any civil action arising under any Act of Congress relating to patents ….” The United States Supreme Court has interpreted this section to allow jurisdiction to extend “only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded complaints.” Here, the first inquiry was not in issue since Thompson’s claim was based on Michigan state law, thus, the Court focused solely on the issue of whether patent law was a necessary element of Thompson’s well-pleaded complaint.

The Court analyzed Thompson’s unjust enrichment claim in search of any nexus to patent law and concluded that, since Thompson based his claim on allegations of Microsoft’s “misappropriation, patenting, and use of proprietary information,” there was no basis for asserting that the matter “arose under” federal patent law. The Court reasoned that since the alleged use of the proprietary information on its own supported the unjust enrichment claim, the tenuous connection to patent law was inadequate to support jurisdiction.

In addition, the Court found that Microsoft’s defense, based on federal preemption with respect to patent law also did not provide the necessary justification for jurisdiction. The Court alluded to its stance that it shall solely focus on the plaintiff’s well-pleaded complaint and disregard any anticipated defenses asserted for purposes of developing jurisdiction under § 1338.

Concluding that Thompson’s well-pleaded complaint does not depend on a substantial question of federal patent law, the Court transferred the case to the appropriate appellate court.

Patents / Infringement

Court Rejects “All or Nothing” Infringement Approach in Determining Summary Judgment against Family of Products
By Pamela A. Kayatta

The U.S. Court of Appeals for the Federal Circuit vacated and remanded summary judgment and held that a patent owner seeking summary judgment of infringement on a group of products (a “family of products”) must make a prima facie showing of infringement for eachaccused product within the family. L&W, Inc., v. Shertech, Inc., Case Nos. 06-1065, -1097 (Fed. Cir., Dec. 14, 2006) (Bryson, J.).

L&W, Inc., a manufacturer of heat shields for automobiles, filed suit against Shertech seeking declaratory judgment of non-infringement. Shertech counterclaimed for infringement. The district court entered summary judgment of infringement based on findings that Shertech had effectually acknowledged infringement by showing that the accused products contained each disputed claim limitation and that L&W had failed to point to a genuine issue of material fact. Shertech appealed.

The Federal Circuit vacated and remanded the case. The Court found that the district court relied on the patent application filed by L&W and evidence from both parties’ expert witnesses. Although L&W had multiple products at issue, both parties approached infringement with an over-generalized “all or nothing” approach to infringement of the family of products and did not specifically analyze infringement as to each product. Shertech presented infringement evidence as to only one of the products and failed to specifically address the remaining products. L&W employees had admitted that the design in the patent application was “our design” and that various L&W products were “covered” by the application. The court, however, noted that these statements “fall short of admission” because “they are not clearly tied” to a specific product to make a prima facie showing of infringement.

In addition, Shertech’s expert witness presented general statements and observations about a heat shield’s structure and performance. Although the expert made some specific observations about one L&W product, this was not enough to justify an award of summary judgment of infringement against a family of products.

Similarly, the Court found that L&W failed to offer specific evidence to rebut Shertech’s expert witness on the few specific measurements he made and instead relied on evidence pertaining to its heat shields generally in an effort to show a genuine issue of material fact. The Court ruled that when a patentee with the burden of proof seeks summary judgment of infringement, it must make a prima facie showing of infringement as to each accused device before the burden shifts to the accused infringer to offer contrary evidence.

In this case, Shertech failed to present specific evidence of infringement as to each accused product within the family of products sufficient to sustain a grant of summary judgment. The court vacated the judgment of infringement and remanded for further proceedings.

Patents / Counsel Opinion

An Invalidity Opinion as Defamatory Material?
By Brett Bachtell

Issuing a summary order, the U.S. Court of Appeals for the Federal Circuit affirmed a district court’s finding that defamation did not exist when an accused infringer’s patent counsel circulated a letter to customers disclosing the belief that the invention contained in the patent was not conceived of by the patentee.R.H. Murphy Co., Inc. v. Illinois Tool Works, Inc., Case No. 2006-1273 (Fed. Cir., Nov. 8, 2006) (Bryson, J.).

In 1993, a Motorola engineer approached R.H. Murphy seeking a storage for ball grid array devices. The Motorola engineer sent a fax to Murphy suggesting the tray and provided sketches detailing the invention. Murphy accepted the idea and offered co-inventorship to the Motorola engineer, who refused, under the belief that Murphy had not conceived of the invention and should not receive inventorship rights. Ignoring the Motorola engineer, Murphy filed a patent application covering the ball grid array trays in October of 1993. Murphy then offered to sell trays covered by the application to Motorola. Motorola refused to purchase the trays from Murphy and instead purchased the trays from Illinois Tool Works (ITW).

In 2000, ITW’s patent counsel drafted an opinion determining the issued patent to be invalid. The opinion stated that the patent was invalid because ITW had sold very similar products more than one year prior to the effective filing date of the patent and that the invention did not originate with Murphy, but rather with the engineer at Motorola with whom Murphy was working. The opinion was subsequently circulated to customers of ITW, some of which were also customers of Murphy.

In 2005, Murphy filed suit in the district court against ITW alleging patent infringement and defamation based on the circulated letter. With regard to the defamation claim, the district court held that, as a matter of law, the statement questioning the validity due to ITW’s prior sales could not be considered defamatory. The district court held that questioning the validity of the patent was not susceptible to a defamatory meaning “any more that [Murphy’s] accusations of infringement leveled at ITW could be construed to be defamatory.”

However, the district court indicated that the statement implying Murphy had stolen the idea from an engineer at Motorola could be considered defamatory. Under controlling law, to find actionable defamation, “there must be publication of a false statement of fact that tends to lower the plaintiff in the esteem of any substantial and respectable group of people.”Conversely, a statement of opinion is not actionable, unless it may reasonably be understood to imply the existence of defamatory fact as the basis for the opinion. The district court determined that ITW’s attorney could not be alerted to the statement being a false fact, for in the opinion of the Motorola engineer, Murphy did not conceive of the invention and the Motorola engineer sincerely believed that the invention was his. Accordingly, the district court held that there was no proof that ITW’s attorney, in drafting the opinion, acted with a reckless or negligent disregard for the truth. The district court eventually invalidated the patent based on two prior art trays under 35 USC § 103.

The U.S. Court of Appeals for the Federal Circuit ruled that a complainant before the International Trade Commission (the Commission) lacked standing to appeal a civil penalty imposed by the Commission on a respondent. The Federal Circuit also upheld the Commission’s decision to impose a civil penalty on a principal who was also the chief operating officer of the respondent.Fuji Photo Film Co., Ltd. v. International Trade Commission, Case Nos. 04-1618, 05-1274 (Fed. Cir., Jan. 11, 2007) (Dyk, J.).

The Commission instituted an investigation on March 25, 1998, to determine whether Jazz Photo Corp. and seven other respondents were infringing Fuji’s patented technology. After finding that respondents were infringing Fuji’s patents, the Commission imposed a general exclusion order barring the importation of cameras that infringed Fuji’s patents and issued a cease and desist order barring Jazz from importing infringing cameras or engaging in a variety of other activities related to disposable cameras. Fuji later initiated an enforcement proceeding before the Commission to investigate charges that Jazz, former Jazz CEO Jack Benum, and former Jazz president, Anthony Cossentino, were violating the cease and desist order. The Commission imposed a $119,750 penalty on Cossentino, a $13 million penalty on Jazz and held Benum jointly and severally liable for the entire penalty on Jazz. Fuji appealed the decision, presumably seeking a higher penalty, contending that the Commission erred in finding that 1.7 million of the 27 million cameras imported by Jazz were permissibly repaired, and therefore, non-infringing. In his appeal, Benum argued that the Commission lacked authority to impose a civil penalty on him.

The Federal Circuit rejected Fuji’s appeal for lack of standing. The Court noted that while it was unclear whether additional penalties would be imposed on Jazz even if the 1.7 million cameras were not permissibly repaired, it was abundantly clear that all penalties would go to the U.S. Treasury, not to Fuji. The Court cited Supreme Court precedent involving enforcement of environmental regulations for the proposition that private plaintiffs cannot sue to assess civil penalties for past violations. The Court left the window open for private plaintiffs when there is a threat of ongoing violations. In this case, there was no threat of ongoing violations since Jazz had ceased its business after filing for bankruptcy in 2003. The Court noted that if Fuji was seeking clarification of the exclusion order, its appropriate remedy was to apply for clarification from the Commission.

With regard to Benum, the Federal Circuit upheld the civil penalties imposed by the Commission. Benum primarily argued that the Commission lacked authority to issue a cease and desist order against him personally. The Court disagreed, finding that the Commission had the power to reach individual corporate officers, citing Supreme Court case law upholding cease and desist orders imposed by the Federal Trade Commission on corporate representatives. The Court dismissed Benum’s final argument, finding that the cease and desist order, which on its face applied to Jazz’s corporate officers, provided adequate notice to Benum that he was bound by the order.

Trademarks / Oppositions

Prior Use Need Not Be “In Commerce” to Prevail on Likelihood of Confusion Claim
Contact Paul Devinsky

Setting straight the Trademark Trial and Appeal Board (TTAB) of the U.S. Patent and Trademark Office (USPTO), the U.S. Court of Appeals for the Federal Circuit reversed a decision concerning the standard for establishing prior use in a likelihood of confusion claim.First Niagara Insurance Brokers, Inc. v. First Niagara Financial Group, Inc., Case No. 06-1202 (Fed. Cir., Jan. 9, 2007) (Clevenger, S.J.).

FN-Canada is an insurance broker that operates entirely out of Ontario, Canada. It has no physical presence in the United States and is not licensed to act as an insurance broker outside of Canada. It also does not own any registered United States marks. Nevertheless, FN-Canada regularly uses several unregistered marks in advertising that spills over into the United States, and in correspondence that it sends to United States contacts.

FN-US is another insurance broker and offers services similar to those offered by FN-Canada. As its name indicates, FN-US is located in the United States, and like FN-Canada, it has customers in both countries.

When FN-US filed intent-to-use applications at the USPTO for certain marks similar to the ones already in use by FN-Canada, the Canadian broker filed oppositions. FN-Canada argued that the FN-US marks were likely to cause confusion with FN-Canada’s marks.

In order to prevail on a likelihood-of-confusion claim, the opposer must establish priority of use. FN-US challenged the ability of FN-Canada to establish priority, on the basis that FN-Canada had not used its marks “in commerce” under 15 U.S.C. §1127. The TTAB agreed that this was the appropriate standard for establishing priority and decided in favor of FN-US, finding the FN-Canada’s use of its marks in the United States was limited to advertising and correspondence, rather than “in commerce.” FN-Canada did not challenge the Board’s application of that standard, but it did appeal the TTAB decision.

The Court noted that for purposes of opposition, 15 U.S.C. §1052(d) requires only that the opposer’s prior mark was “used in the United States by another,” not use in commerce, either interstate, intrastate or between the U.S. and a foreign jurisdiction. Brief references to §1052(d), Federal Circuit case law and a treatise led the Court to the unambiguous conclusion that to sustain an opposition, a prior use in the United States need not have been “in commerce.” After chastising FN-Canada for not attempting to relieve itself of the high burden incorrectly imposed on it by the Board, the Court simply reversed the TTAB decision.

E-Commerce / Spam / Pre-emption

Email Spammer Cruises to Victory (Web Only)
By Amol Parikh

Narrowly construing the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act), the United States Court of Appeals for the Fourth Circuit affirmed a district court’s award of summary judgment for an e-mail marketer.Omega World Travel, Inc. v. Mummagraphics, Inc., 469 F.3d 348 (4th Cir., Nov. 17, 2006) (Wilkinson, J.).

Omega World Travel operates a website, cruise.com, selling cruise vacations and also sends email advertisements to prospective customers. It sent 11 email advertisements containing travel offers to Mummagraphics between December 2004 and February 2005. Each message included a link which the recipient could click in order to be removed from future mailings, and each message also stated that the recipient could opt-out of future e-mails by writing to a postal address contained in each message.

Mummagraphics alleges that the e-mail advertisements contained several inaccuracies and that Omega failed to comply with the CAN-SPAM Act and Oklahoma statutes regulating commercial email messages. In granting summary judgment in favor of Omega, the district court held that the CAN-SPAM Act pre-empted Mummagraphics claims under Oklahoma statutes insofar as they applied to immaterial representations in the e-mail advertisements. Also, the district court further held that the alleged e-mail inaccuracies were not material, as required by the CAN-SPAM Act, and thus, Omega had not violated the CAN-SPAM Act. Mummagraphics appealed.

On appeal, the Fourth Circuit affirmed that actions for immaterial error under state statute were pre-empted by the CAN-SPAM Act. In particular, the CAN-SPAM Act supercedes state statutes that regulate the use electronic mail to send commercial messages, except to the extent such statutes prohibit falsity or deception in any portion of the message. In interpreting the CAN-SPAM Act and reviewing the legislative history behind the Act, the Court noted that Congress did not intend the falsity exception to encompass bare error because such a reading would upset the balance between preserving a potentially useful commercial tool and preventing its abuse. Rather, the exception only applied to torts involving misrepresentation and not to simple errors that have no action in tort. As a result, the Court held that the CAN-SPAN Act pre-empted Oklahoma’s anti-spam statute.

Although, under the CAN-SPAM Act, it is unlawful to send a commercial e-mail message that contains header information that is “materially false or materially misleading,” the Court noted that “materially,” when used with respect to false or misleading header information, includes alteration of concealment of header information in a manner that impairs the ability to identify, locate or respond to a person who initiated the electronic mail message. However, inaccuracies such as header information that incorrectly identified the server from which the messages originated were found to not be materially false or materially misleading because the messages contained numerous methods to identify, locate or respond to the sender of the message. In particular, each message included a link on which the recipient could click in order to be removed from future mailings, a toll-free number to call to be removed from future mailings and an address for Omega.

Finally, the Court rejected Mummagraphics claim that the e-mail messages amounted to trespass to chattels under Oklahoma law. While the CAN-SPAM Act does not pre-empt application of state tort laws that are not specific to email messages, the Court found that Mummagraphics had not offered evidence that the e-mails caused more than nominal damages. The receipt of the e-mail messages did not place a meaningful burden on the company’s computer system or any other resources, and thus, no damages could be shown.

Trademarks / Cybersquatting

Sixth Circuit Censures Cybersquatting
By Natalie A. Ward

The U.S. Court of Appeals for the Sixth Circuit upheld a district court’s award of summary judgment, injunctive relief and attorneys’ fees in favor of Audi AG, holding that Defendant Bob D’Amato infringed and diluted the world-famous AUDI, AUDI FOUR RING LOGO, and QUATTRO marks (the “Audi Trademarks”), along with the distinctive trade dress of Audi’s automobiles, and violated the Anticybersquatting Consumer Protection Act (ACPA).Audi AG and Volkswagen of America, Inc. v. Bob D'Amato, Case No. 05-2359(6th Cir., Nov. 27, 2006) (Martin, J.).

In February 1999, D’Amato, an individual unaffiliated with Audi AG, registered the domain name www.audisport.com. In February 2002, an Audi dealership contracted with D’Amato to post links to a separate page, www.audisport.com/Boutique.htm, where merchandise (e.g., caps and shirts) bearing the Audi Trademarks, along with personalized “@audisport.com” e-mail addresses, were sold beginning in 2003. A graphic designer D’Amato hired to develop a pair of logos incorporating the AUDI FOUR RING LOGO commented that Audi offered similar goods online and questioned D’Amato about his connection to Audi and licensing rights to reproduce the Audi Trademarks.

The homepage of www.audisport.com described the webpage as “a cooperative with Audi of America … providing the latest products for your Audi’s [sic] and information on Audisport North America.” On the site, D’Amato offered to sell advertising space and posted news and press releases he received from one of Audi’s public relations contactors, which he tagged as “Text and Photos Courtesy of Audi AG.”

As of May 2003, the Audi dealership decided not to develop the boutique site further, however, the links were not removed. D’Amato received three cease and desist letters from Audi between mid-December 2003 and early January 2004. On February 4, 2004, D’Amato claimed that he removed all content incorporating the Audi Trademarks, thus allegedly reverting the site to a “noncommercial website.”

With respect to the trademark infringement and dilution counts, the Sixth Circuit cited the world-famous strength of the Audi Trademarks, likelihood of erroneous consumer affiliation between the parties, failure of “sport” to distinguish D’Amato’s domain name from AUDI, the graphic designer’s actual confusion, the parties’ shared consumer market, the improbability that consumers would exercise a high degree of care when purchasing inexpensive goods sold via D’Amato’s website and D’Amato’s intentional use of the marks without permission. The Court noted that website disclaimers of association with Audi could not absolve the liability generated by use of the actual Audi Trademarks in connection with commerce, which includes even minimal advertisement of goods or services.

The Sixth Circuit affirmed the cybersquatting count, reasoning that, under the applicable factors, D’Amato lacked any intellectual property rights in www.audisport.com, which notably included Audi’s legal and common name. The Court also found that D’Amato did not have prior use of the domain name for the bona fide offering of goods or services, which infringed upon Audi’s trademarks from the moment of their initial posting. The Court noted that D’Amato’s use of the site to sell Audi merchandise, e-mail addresses and advertising space negated any fair use argument or “safe harbor.” Lastly, the Court inferred D’Amato’s intent to divert purchasing customers from Audi’s official website by failing to obtain written permission to use www.audisport.com and actively misrepresenting the existence of signed agreement with Audi. Finally, the Court found D’Amato’s belief that he had permission to use the trademarks objectively unreasonable, and therefore, declined to allow him the benefit of the “reasonable belief” defense.

In a victory for free speech on the internet, the California Supreme Court recently rejected the California Court of Appeal’s interpretation of § 230 of the Communications Decency Act (CDA), which would have imposed liability whenever an internet intermediary either knows or should have known of the defamatory nature of the material posted.Barrett v. Rosenthal, 2006 Cal. LEXIS 13529, (Cal.Supr. Ct.,Nov. 20, 2006) (Corrigan, J.).

Section 230(c)(1) of the Communications Decency Act of 1996, states that “no provider or user of an interactive computer service” may be held liable for putting material on the internet that was written by someone else. An “interactive computer service” can be anything that provides multiple users with access to a computer server, such as the service provided by AOL and other Internet Service Providers (ISPs), newsgroups, interactive websites and even universities and libraries that provide Internet access to students or patrons. The statute has protected internet publishers from being held liable for allegedly harmful and/or defamatory comments written by others. Attempts to eliminate the protections afforded to internet providers under § 230 have been rejected by most courts.

Two doctors sued women’s health activist Ilena Rosenthal for libel and defamation, claiming she posted a defamatory article about them to an internet newsgroup. Because Rosenthal argued, inter alia, that § 230 protects her from liability because the published piece was authored by a third party. The trial court determined there was one actionable statement posted by Rosenthal. However, the trial court ruled that Rosenthal's “republication” was immunized under § 230.

In a radical departure from precedent, the California Court of Appeal decided that “common law ‘distributor’ liability survived the congressional grant of immunity [under § 230], so that Internet service providers and users are exposed to liability if they republish a statement with notice of its defamatory character.” The California Court of Appeal vacated the district court’s order granting Rosenthal’s motion to strike as applied to one of the plaintiffs and held that § 230 did not protect Rosenthal. In doing so, the Court of Appeal rejected the established Fourth Circuit decision in Zeran v. America Online, Inc. In Zeran, the plaintiff sued AOL for posting defamatory messages. The Fourth Circuit sided with AOL, holding that § 230 “creates a federal immunity to any cause of action that would make service providers liable for information originating with a third-party user of that service.” The California Court of Appeal rejected Zeran and reasoned that § 230 cannot abrogate “common law principle” that one who republishes defamatory statements originated by a third-party should be liable if “he or she knows or has reason to know its defamatory character.” The Court of Appeal concluded that Congress intended to distinguish between “publishers” and “distributors,” immunizing publishers but leaving distributors exposed to liability. In common law, “primary publishers,” such as book, newspaper or magazine publishers, are liable for defamation on the same basis as authors. Book sellers, news vendors or other “distributors,” however, may only be held liable if they knew or had reason to know of a publication’s defamatory content. Rosenthal appealed.

The California Supreme Court reversed, embracing instead the Fourth Circuit’s Zeran decision. The Supreme Court held that the publisher/distributor distinction, as far as the internet is concerned, made no difference for purposes of § immunity because “distributors” are also known as “secondary publishers.” It held that § 230’s protection applies to ordinary individuals such as Rosenthal in the same way it applies to ISPs, website operators and bloggers. In addition, the Supreme Court reaffirmed that, in enacting § 230, Congress intended to provide very broad protection from liability to internet intermediaries that disseminate material written by others. In reaching that conclusion, the Court explicitly rejected the Court of Appeal’s interpretation of § 230, which would have imposed liability whenever an internet intermediary either knows or should have known of the defamatory nature of the material posted. The Court recognized that, rather than risk being sued, internet intermediaries will take down material whenever someone complains, thus giving a “heckler’s veto” to anyone objecting to controversial content.

Copyrights / Ownership

Copyright Registration Form Does Not Constitute a Written Agreement that Changes Ownership Status
Contact Paul Devinsky

Affirming the district court’s finding that the copyrighted books at issue were works made for hire, the U.S. Court of Appeals for the Fifth Circuit held that a copyright registration form does not constitute a “written agreement” within the meaning of 17 U.S.C. §201(b) as required to change the employment relationship between parties and the “work made for hire” status of the works.E. Price Pritchett; L.P. Pritchett v. Nancy Pound, Case No. 05-41445 (5th Cir., Dec. 18, 2006) (Reavley, J.).

Ronald Pound was hired by Pritchett, L.P., a business consulting firm founded by E. Price Pritchett. The employment contract governing Pound’s employment explicitly provided that should the employee produce any written materials in the course of his work, then materials shall be considered the exclusive property of the employer. Thereafter, Pritchett and Pound co-wrote a line of handbooks. All revenues from sales from the books went directly to the company.

Pritchett, L.P. filed copyright registrations for the two handbooks. The employee who completed the registration forms listed both Pound and Pritchett as co-authors and checked “NO” when designating whether the books were “works made for hire.” For one of the books, both Pritchett and Pound signed the registration and were listed as copyright claimants.

In 1995, Pound died, and in 2002 his wife sued Pritchett in state court alleging co-ownership in the books’ copyrights and seeking an accounting and royalties. At this point, the registration forms were finally corrected to reflect that the books were works made for hire and that Pritchett, L.P. owns all of the copyrights in the books. Pritchett subsequently filed a separate suit in federal court seeking declaratory judgment that the company was the sole owner of the copyrights in the two books. The district court granted summary judgment on the issue of ownership in favor of Pritchett.

The Fifth Circuit affirmed, noting that the employment agreement between Pritchett, L.P. and Pound expressly provided that all written materials created by Pound were the exclusive property of his employer. Citing § 201(b) of the Copyright Act, the Court held that the books were a work made for hire because Pritchett and Pound did not expressly agree otherwise by “written instrument” signed by them. While the copyright registration form, if standing alone, would be some evidence of joint ownership, it does not constitute a “written instrument” that would change the employment relationship as required under the statute.

Addressing the admissibility of expert testimony in trade secrets cases, the U.S. Court of Appeals for the Sixth Circuit ordered a new trial after finding that the district court had “abandoned” its gate-keeping function under F.R.E. Rule 702.Mike’s Train House, Inc. v. Lionel, L.L.C., Case No. 05-1095, 2006 U.S. App. LEXIS 30628 (6th Cir., Dec. 14, 2006) (Coole, C.J.).

Mike’s Train House (MTH) claimed that model trains manufactured in Korea for Lionel were based upon trade-secret designs for MTH trains that had been misappropriated by employees of a Korean firm both parties had used. The employees received criminal convictions in Korean court. MTH then sued Lionel and the Korean parties in the United States for misappropriation of trade secrets and unjust enrichment. A jury found for MTH and awarded damages of nearly $26 million for past and future lost profits. The district court refused Lionel’s motions for a new trial and for judgment as a matter of law. Lionel appealed.

Lionel argued that the district court should not have admitted the testimony of MTH’s expert witness, who compared the drawings for Lionel’s trains to those of MTH’s and testified that many showed evidence of copying. The Court agreed that the testimony should have been excluded as unreliable under F.R.E. 702. It said the district court had failed to make any findings regarding the reliability of the expert’s methodology for determining whether the Lionel drawings were copied from MTH’s. The Court noted that the expert had devised the methodology specifically for the litigation, and that it did not meet any of the Daubert criteria for reliability, such as being peer-reviewed or a having a known error rate. The Court also found that the expert’s analysis demonstrated a lack of understanding of the Korean design industry. In addition, the expert spent a significant portion of his testimony comparing the results of his own analysis with those of the expert in the Korean criminal case. Lionel argued, and the Court agreed, that this testimony was hearsay and was inadmissible under F.R.E. 703, because the Korean expert’s findings were not admitted as evidence in the U.S. trial. The Sixth Circuit said F.R.E. 703 does not permit an expert to testify about the conclusions of other experts not in evidence and that admitting the expert’s testimony was not harmless error, because it was the only evidence the jury heard on the degree of copying between the drawings.

In a ruling closely watched by intellectual property owners around the world, Beijing’s No. 1 Intermediate Court confirmed a 2006 ruling that upheld Pfizer’s patent for the erectile dysfunction drug Viagra and ordered the two Chinese companies to stop sales of a generic version.

The Viagra patent application entered China’s national phase examination in 1995 through the PCT. In 2001, after three Office Actions and resulting amendments, the Chinese counterpart Viagra patent, having a single claim, was granted by the Chinese Patent Office (SIPO). Almost immediately, 13 complaints (from one individual and 12 Chinese pharmaceutical companies) were filed with the Patent Reexamination Board (PRB) of the SIPO challenging the patentability of the Chinese Viagra patent. The PRB declared the Chinese patent invalid for not conforming with Article 26 of China’s Patent Law, which requires that a patent applicant provide a description of the drug “in a manner sufficiently clear and complete so as to enable a person skilled in the relevant field” to understand the drug. Pfizer appealed the invalidation decision to the Beijing No. 1 Intermediate People’s Court, the trial court that exclusively reviews all administrative decisions of the PRB. In June 2006, the Court vacated the SIPO’s invalidation decision and ordered the PRB to enter a new decision upholding the Viagra patent.

In this latest round in Pfizer’s battle for patent rights in China, the Court last month affirmed its June 2006 ruling and ordered Beijing Health New Concept Pharmacy and Lianhuan Pharmaceuticals to stop selling Viagra and to pay Pfizer $38,000 in damages. The latest ruling follows President Hu Jintao’s pledge during his visit to the United States in April 2006 that Beijing would take steps to improve protection of intellectual property rights in China.